P~~~E~~~S~~~

Price Elasticity of Supply (PES) is the measurement of responsiveness of the quantity SUPPLIED of a good to a change in it's price. In PED, YED, and XED, the gradient were rather important when it comes to the graph. HOW~E~VER~, in PES, the gradient is not as important, but rather WHERE the SS curve cuts.

If the SS curve cuts the y-axis, then it's elastic.

Like all elastic sayings, small percentage change in P will lead to a big percentage change in Qs

Unfortunately, we are talking about the Qs, so it does not mean, demand increase or decrease or so and so. Instead, (it was brain wrecking for me to understand it but I got it now... I think) it shows that the producers are able to increase the output of supply in a short amount of time. Such as, from one moment, Ztabilo could produce 10 mil pens per day last week, but this week, they are producing 20 mil pens per day. However, not all products has the ability to be elastic, especially those that takes a lo~~~ng time to produce. These type of products are also known as, INELASTIC (are unable to increase output of supply in a short amount of time)!

Q1 to Q2 increase by 5% whereas P1 to P2 increase by 10 percent (not accurate graph, I know ==) Not that important though, as whats important is where the SS curve cuts, and in this case, it cuts the~~~, X-axis.

A rather good example of inelastic goods would be airplanes/aeroplanes (British or American spelling, who cares right?). We can't simply expect MAS to suddenly mass produce airplanes as we need to consider, not only the process of assembling the parts of an airplane, but also due to the limited natural resources and space/area to store these airplanes in a short time.

Then there's the perfectly inelastic (PES=0; vertical SS curve), perfectly elastic (PES=Infinity; horizontal SS curve) and unitary SS (PES=1; SS curve cuts the origin)

Ignore the shapes...they are failed...inputs? Anyways, the explanation is similar to PED, but it's supply instead.

Determinants of PES

Determinants of PES would include time, length of production, and existence of surplus capacity.

Time: Time be branched out into another 3 category, momentary period, short run(SR), and long run(LR).

Length of production process: As stated earlier, a product that takes a long production process is considered inelastic. However, airplanes, houses and spaceships are exceptions as most manufactured goods are actually elastic, as manufactured goods are non perishable, excess supply can be stored and released once the demand for it increases. An example of elastic supply would be toothbrushes.

Agricultural goods in the other hand are categorized under inelastic goods. This is because vegetables and seasonal fruits takes a long time to grow ripe and are able to be sold in markets. However, there are also exceptions for agricultural goods, such as frozen food and crop rotation.

Existence of surplus capacity: Surplus capacity indicates that there are underutilized machines or spare raw materials. For example, a car factory has 100 robot but only 80 of them are actually switched on and USED in the production process. Firms that has surplus capacity are considered as elastic, as they will be able to cope with the sudden increase in Qd.

Applications of PES:

PES is important to firms in a couple of ways. When a firm knows they are carrying too much stock, it would be costly (storing your stocks are not free. Imagine the size of your warehouse if you need to store 10 million mattresses). However, if they are to carry Insufficient stock, then the firm has a risk of not being able to fulfill the demands when they increase. If a firm is aware that their SS is inelastic, then it is suggested they should carry more stock as they wont be able to increase the Qs in a short time and visa-versa.

In conclusion, PES is just as important to a firm as PED, YED and XED would be. Without PES, firms might have problems coping with sudden changes in demand as they can't identify whether their supply is inelastic or elastic.